Benefits Of Early Discovery In Defending Trade Secret Misappropriation Claims

Suppose that you are general counsel of a sophisticated business—a software, biotechnology, or manufacturing company. One day, you find out that a lawsuit has been filed accusing your company of misappropriating the trade secrets of another firm. The complaint makes sweeping allegations that your company misappropriated the trade secrets behind the plaintiff's "revolutionary" and "unique" products and incorporated them into one of your company's core products. Plaintiff immediately seeks broad discovery of your company's proprietary information stretching back years, and asks you to provide your most sensitive product development information to plaintiff's experts for a comparative "analysis." You prepare to turn over reams of documents and to hire your own experts to conduct a dueling analysis.

Not so fast. This scenario may well be one where defense counsel can seize the initiative, turning the tables on the plaintiff by seeking early discovery of its own. The danger here is that plaintiff will root around in your company's product files and miraculously "find" something that it alleges was taken. Liberal pleading rules and similarities across competing products make it easy for plaintiffs to launch fishing expeditions based on superficial allegations and with little or no evidence of misappropriation. Unless this bootstrapping is stopped in its tracks, your company may be in for a long period of expensive discovery, a battle of the experts, and a complicated trial.

Push for Early Specification

Fortunately, courts recognize that trade secret misappropriation cases present a special risk to defendants like the company described in the introduction. Extensive case law (and at least one state statute) allow defendants to seek a protective order requiring plaintiffs to provide a detailed and specific disclosure of its allegedly stolen trade secrets before plaintiff takes any discovery. Obtaining such a protective order is likely to be one of the first—and most important—moves in defense of any trade secret claim.

While every case presents unique considerations, a trade secret defendant is likely to have good arguments for a such a protective order. There is "general agreement" amongst courts "that it is appropriate to require a trade secret owner to state its claimed trade secrets before it engages in discovery from the defendant about the defendant's use of the trade secrets."1 Generally, courts have discretion to issue orders limiting the scope or specifying the terms of discovery,2 including the power to stay any discovery by plaintiff until it particularizes its trade secret claims.3 In California, this disclosure is now mandated by statute.4

There are four principal reasons defense counsel can give a court to support the entry of an order requiring a trade secret disclosure by plaintiff as a condition to any discovery. First, requiring early and specific disclosure of the plaintiff's claimed trade secrets helps weed out meritless, speculative claims by ensuring that a plaintiff will not mold its cause of action around the discovery it receives from the defendant.5 Courts recognize the serious risk that trade secret plaintiffs, under the guise of a generalized claim of misappropriation, will first obtain discovery of a defendant's sensitive information, then miraculously claim what is found there to be plaintiff's own intellectual property.6 Requiring a plaintiff to be specific about what it owns prior to obtaining discovery "freezes" plaintiff's...